This paper characterizes the optimal contract when the agent is endowed with aspirational utility. Our analysis reveals that effort and aspirations act as complements: the principal utilizes aspirational ``boosters'' to induce local risk-loving behavior, reducing the welfare costs of incentives and leading to higher effort levels. We find that the optimal compensation contract features a discontinuous jump to reach the aspiration point after good performance,...

I study the optimal integration of humans and technologies in multi-layered decision-making processes. Each layer can correct existing errors but may also introduce new ones. A one-dimensional quality metric – a decision-maker’s error correction capability normalized by its new errors – determines the optimal rule: deploying higher-quality technologies in later stages. Interestingly, the final decision-making layer may not achieve the greatest error reduction; instead, its...

Many regulations aim at promoting coordination among creditors in bankruptcy by ex post restricting their ability to exit distressed firms. However, such restrictions may harm creditors’ ex ante incentives to stay invested, thereby worsening coordination outcomes. We build a dynamic coordination model to show how this force shapes creditor runs, bankruptcy filings, and regulation designs. Intriguingly, filing for bankruptcy early, thereby preserving more assets for...